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Moratorium on eviction of defaulters - 2: salvation or danger?

Author: Viktoria Papp

Moratorium on eviction of defaulters: salvation or danger?

Contributed by Gárdos Füredi Mosonyi Tomori

October 08 2010

Parliament has unanimously passed an amendment to the Judicial Enforcement Actthat extends the moratorium on evictions for defaulters until April 15 2011. Since thebeginning of 2010 the government has issued several decrees suspending the right toevict mortgage defaulters, who may face severe difficulties in meeting their loanrepayment obligations as a consequence of the financial crisis. However, the legislativechange is the first measure to provide a moratorium for all defaulters.Since December 2003 the act has provided that a bailiff must suspend evictions fromresidential properties between the months of December and March where the defaulteris a private individual (unless the property was occupied unlawfully or the debtor haspreviously been fined for failing to meet the obligations prescribed by law in connectionwith enforcement). This rule was intended to prevent defaulters from being madehomeless during winter.

Due to a severe currency fluctuation induced by the global financial crisis, in the finalquarter of 2009 a large number of borrowers who had taken out loans in a foreigncurrency - particularly the euro and the Swiss franc - faced sharp and unexpectedincreases in their loan instalments. Many mortgage defaulters were in danger of beingmade homeless. In order to help, the government passed a decree which introduced amoratorium on evictions from residential properties until April 15 2010. The newgovernment, which was elected in April 2010, also confirmed its determination to assistdebtors in difficulty as a result of the financial crisis. It issued a 29-point action plan tostabilise the national economy and accelerate its recovery. Included in the measures,the moratorium on evictions for mortgage defaulters was planned to be extended untilthe end of 2010. The amendment to the act extended the moratorium until April 152011.

Although the latest change appears to provide temporary respite in the case ofindividual defaulters, it carries several serious risks.Most obviously, the moratorium merely suspends the possibility of eviction, rather thanterminating it. Thus, at the end of the moratorium a large number of defaulters may findthemselves on the streets unless a permanent solution is implemented before thattime. The prohibition against enforcing claims secured by a mortgage, which until nowconstituted the most efficient means of enforcing loans, may drive back lending.Moreover, the latest modification does not distinguish between debtors, which makesthe enforcement of claims by the rightful claimants (especially individuals) moredifficult. At a fundamental legal level, if no legal consequences are stipulated for defaultof payment, this will give rise to a significant moral hazard in the field of individuals'contractual performance.

As the moratorium represents only a temporary respite for the debtors, the governmenthas set itself the objective of establishing a debt management institution during themoratorium. In the long term, this may enable the enforcement of rightful claims whilepreventing a flood of evictions.

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